Using an Edgeworth box, draw the following scenario. Amanda and Genevieve are in a 2-person closed economy where they only consume 2 goods: cheese and oranges. Amanda initially has 10 circles of cheese and 2 oranges and Genevieve initially has 12 oranges and 1 circle of cheese. Genevieve is tired of oranges and would like more cheese. Likewise, Amanda has eaten too much cheese in the past and would prefer more oranges.

Assume that they engage in a series of trades and in the end settle on the following deal:

Amanda gives Genevieve 4 circles of cheese in exchange for 6 oranges. Make sure to indicate on your graph: i. all of the axes, ii. indifference curves at the initial endowment (assume usual, well-behaved, convex indifference curves), iii. and indifference curves at the final bundle that emerged as an equilibrium through trade.

a. Was the initial endowment Pareto efficient? Is the equilibrium bundle Pareto efficient? Justify your answers.

b. Compare their consumption bundles found through trade (above) to the bundle that would be achieved if the government took all of their oranges and cheese and redistributed them equally among the two women. Do we know whether this redistribution is Pareto efficient?